World leaders meet today for the third G20 summit, following gatherings in Washington and London. The venue this time is not a major world capital but Pittsburgh, Pennsylvania, named after William Pitt the Elder, following the capture of Fort Duquesne by British Forces from the French in 1758.
The venue was personally selected by President Obama, due to its reputation as a modern day phoenix, rising from the ashes of a once great steel industry whose polluting effects gave rise to the city being described as ‘hell with the lid off’.
Today Pittsburgh has weathered the economic storms through a survival instinct borne out of adversity. Investment in new industries and services has rejuvenated the city and Pittsburgh is one of only a few cities in the USA which has not seen a significant decline as a result of the global recession.
In the run up to the summit we have seen the now increasingly familiar focus on the financial crisis, with Mr Sarkozy concentrating minds very early on, this time on bankers pay, which looks set to take centre stage. It seems Mrs Merkel may be sympathetic as she gains some respite from the campaign trail in the final days of the German election.
Reassuringly President Obama in the lead up to the summit has put much bigger issues centre stage, with the Middle East, Iran and Korea all receiving deserved attention.
Clearly the world order has changed, with only China and Russia qualifying for private meetings with the US President in the run up to G20, whilst Mr Brown it is reported had to make do with the UN Assembly kitchen.
The attempts to normalise international relations by the Americans will provide President Obama with some welcome respite from the domestic healthcare battle which seems to have caused his approval ratings with the American public to falter. There is now real hope that the G1 ‘pitbull’ approach of Bush will evolve into a substantive G20, under Obama.
The challenge this time around is to hold the world leaders together as they no longer have such an acute crisis to unite them. The distracting focus on bankers pay and tax havens; which in real world economics did not play a central part in the crisis, and has very little to do with the recovery we all hope for, is simply playing around in the foothills, as opposed to the more important task of scaling the mountain peaks.
There are twin peaks to scale and it is the vital work of the G20 to address these challenges if we are to see a sustained recovery.
The first peak is the continuing global imbalances in trade which led to the sustained artificially low interest rates in the west, spawning the credit boom. China and Germany must consume more and the UK and US less, if we are not to repeat this cycle. Without this we will continue to have speculative carry trades and distorting global imbalances.
The second peak is regulation. Sovereign solutions will not work, EU solutions will not work, global solutions are needed to avoid regulatory arbitrage, and to provide the necessary handle on the financial system, which has become the global bazaar of the global village. There can be no doubt now that the actions of the Fed under Greenspan fed the credit boom and without co ordination with other central banks and clarity over who is responsible for managing and supervising systemic risk, nationally and trans-nationally, we will not make real progress.
The best we can hope for is that when the gala evening draws to a close and the communiqué is agreed, the G20 leaders, resplendent in their dinner jackets and evening gowns, form penguin like, stand shoulder to shoulder, and are united in agreeing sensible actions to address these challenges.
Jersey should have nothing to fear from this G20; the recent IMF review, the best achieved by any country to date, added to our OECD White list status, followed by a strong showing in the Global Financial Centres Index, all evidence we are in the first rank of International Finance Centres.
There are risks; competing agendas are rife. Who has the best solution to the bankers’ pay debate? Who has the best regulatory model? Who can achieve the greatest populist approval? It may all prove too intoxicating a mix of grandstanding opportunities for some. The EU and the French may renew their attack on free markets, Anglo Saxon capitalism, and the Tax Haven ‘Pirates’, acting multilaterally within Europe, or even uni-laterally, with France leading the charge.
Which brings me back to Pitt the Elder who once said:-
"I am sure I can save the country and no one else can."
Let’s hope the venerable leaders of the G20 collaborate for the common good. If they compete to be the saviour of the world, as they see it, I fear we will not make much progress.
I’m pinning my hopes on those sensible people in the IMF, OECD and Financial Stability Board, ……..let’s hope the G20 Leader’s listen to them.